Seattle Bubble

• Foreclosures Still Rising Locally
• Local Foreclosures Still on the Rise
• Seattle-Area Foreclosures Rising Rapidly
• Freddie Mac: 81% 4th Qtr. ‘07 Refi’s exceeded original loan by 5% or more.
• County Council Candidates Talk Housing

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52 responses so far ↓

• 1 rose-colored-coolaid // Dec 19, 2007 at 1:20 pm

  After the bizarre manner that Gregoire won/stole (depending on your side) the election, I think she’s actually been doing a pretty good job of late. Just today, they also announced a 1.2 billion rainy day fund. It would have been better if we’d started planning for some of these events 4 years ago, but at least the local government seems to be doing some rational things about matters today.

  From what I’ve seen of this plan, I agree Tim. It actually looks like a plan and not a bailout.

  And I actually agree with the statement that America is a rich enough nation that every American deserves a home and warm meals. Even if that home is sharing a 10×10 dorm with another chap, and even if that hot meal is Top Ramen, we should take care of each other to at least that extent.

  This plan flies entirely in the face of the federal government who have been running around confused for years now.

• 2 deejayoh // Dec 19, 2007 at 1:32 pm

  Not surprising that foreclosures are spiking locally. That’s generally what happens when prices stop going up…

  Trulia just started showing foreclosures on their map. For a visual representation of what foreclosure activity looks like in Seattle, check out this link.

• 3 Mike2 // Dec 19, 2007 at 2:03 pm

  Ban mortgages where the balance actually increase every month

  How about we just ban making the minimum payment?

  Whatever the case, this would cut another 15% off the sales volume and force a considerable number of recent home buyers into refinancing to a significantly higher monthly payment.

• 4 Shawn // Dec 19, 2007 at 2:18 pm

  I hope the press is putting this on the front pages, “Again Seattle bucks national trend and has higher numbers!!!” :)

• 5 on topic // Dec 19, 2007 at 3:04 pm

  I agree that all people deserve to have access to shelter and food. It feels ridiculous to say so. That people could disagree with such a fundamental thing is beyond me.

  I also agree that Top Ramen is delicious. I enjoy Top Ramen with hot chili sauce and an egg, spicy egg drop soup style. For $.50 and a cooking time under 5 minutes, I can’t imagine much better.

  At any price, it is quite tasty.

• 6 Jonny // Dec 19, 2007 at 3:59 pm

  Does anyone have any good charts of this data?

• 7 Jess-Pumpkin // Dec 19, 2007 at 4:38 pm

  Oh no, that Trulia.com site will be yet another site I obsessively check every day — here’s a foreclosure for $1+ million!: http://www.trulia.com/foreclosure/2000444590–Magnolia-Way-W-Seattle-WA-98199

  …and it’s Magnolia, too, to continue our Magnolia chit-chat from the forum.

• 8 TJ_98370 // Dec 19, 2007 at 4:59 pm

  I didn’t know about Trulia either. The foreclosure thing is great!

• 9 Markor // Dec 19, 2007 at 5:06 pm

  This plan flies entirely in the face of the federal government who have been running around confused for years now.

  I would say the federal government has done an excellent job of making the rich richer, and letting the rest eat cake. Bush said “I represent the haves and the have mores” and boy has he!

• 10 Jillayne Schlicke // Dec 19, 2007 at 6:02 pm

  “$1.5 million for the Department of Financial Institutions to provide education and counseling to owners affected by the mortgage crisis”

  Okay, DFI does a fairly good job. I interact with them on a regular basis. HOWEVER, we ALREADY HAVE lots of money coming into this state thanks to President Bush’s FHA Secure program which earmarked money for HUD-approved Housing Counseling agencies across the US, including here. If you go to HUD.gov and click on “talk to a housing counselor” you’ll see thousands of these agencies all across the US.

  That same money could be better spent by DFI to REGULATE the mortgage brokers. Something the federal government doesn’t really get involved with, unless the mortgage fraud case is so severe it gets referred to the FBI.

  The rest of the proposals mirror what the federal government is currently trying to do, with the exception of the foreclosure rescue scams.

  “Require a one-page disclosure of loan fees and terms, and documentation that refinances benefit borrowers.”

  Hello? is anybody there? We ALREADY HAVE this, sans the “benefits borrowers” clause, which the federal government is currently working on. The forms are called the Good Faith Estimate and the Truth In Lending Regulation Z form.

  This money could be better spent training the loan originators how to properly complete these forms, how to explain the content of these forms to the borrowers, and, well, what the forms were designed to do. I teach LOs every day. 98% of all my students do not know how to complete the GFE the way HUD intended, and absolutely do not know the content of the TIL disclosure form.

  Give the money to DFI, but give it to their enforcement unit.

• 11 david losh // Dec 19, 2007 at 8:07 pm

  I have an appointment both Thursday and Friday with foreclosure clients. In my office we talk about or with short sales every day. Two groups that I do business with buy and resell short sales and preforeclosures. Last week a woman I have worked with for several months, then intensely the past two weeks decided to ride out the foreclosure based on her attorney’s advice.
  The only point I would like to make is that recently a lot of people I talk with have no problem walking away from a house. In the case of the woman who has an attorney, she bought a house for $400K, refinanced a year later for $492K then stopped making payments after seven months. She had a low introductory interest rate that as it reset she pulled the plug and stopped making her payments then lived in the house for several months without a payment. Her appliances are for sale on craigslist.
  I’m just saying that some of the people I’m talking to are pretty slick.
  The foreclosure thing I’m really not getting. This is what you guys wanted. The time is here. Prices and interest rates are down, people are walking away from houses. Banks are thrilled to make a deal.
  Take a look at the economy. Look at Morgan Stanley’s report today. Morgan Stanley said it lost $3.61 billion, or $3.61 per share in the fourth quarter, compared to a profit of $2.27 billion, or $1.44 per share, a year earlier. The investment house reported negative net revenue of $450 million because of the writedowns, compared to revenue of $7.75 billion a year ago.
  and
  For the full year, Morgan Stanley’s profit plunged 62 percent to $3.44 billion from $9.10 billion in 2006. Revenue fell 6 percent to $28.03 billion from $29.84 billion in 2006.
  Oh My God only 3.44 Billion dollars of profit. I’ll bet last year they made a couple of bucks.
  It’s over. Time to make other predictions. Who do you think will be the next President?

• 12 just_checking // Dec 19, 2007 at 9:19 pm

  Interesting article that illustrates how home prices are kept elevated
  http://online.wsj.com/article/SB119803038237438417.html?mod=yahoo_hs&ru=yahoo

  Not sure if u need a login.

• 13 Ubersalad // Dec 19, 2007 at 9:50 pm

  “I’m just saying that some of the people I’m talking to are pretty slick.”

  Wow, that says a lot about you to call these monkeys slick. I know how to pump gas and drive away, I guess I am pretty slick, too.

• 14 Ubersalad // Dec 19, 2007 at 9:58 pm

  Btw, Trulia.com is retarded, they are calling washington square condos as single-family homes.

  http://www.trulia.com/WA/Bellevue/

• 15 Ubersalad // Dec 19, 2007 at 10:03 pm

  Nevermind, they don’t have such category as condo apparently.

• 16 Jonny // Dec 19, 2007 at 10:27 pm

  “The foreclosure thing I’m really not getting. This is what you guys wanted. The time is here. Prices and interest rates are down, people are walking away from houses. Banks are thrilled to make a deal.”

  Well, it would depend on the deal, of course, but it seems like a waste to start shopping now. There’s no rush when prices are going to drop all through 2008 and beyond. I would probably make a deal for 40% off of a house in North Seattle. Those houses are currently around $450-600K. I would want something under $300K. I do not currently see any listings on craigslist in that target range. Therefore, I’ll save money and wait a year. Things will definitely be better next December. How much better? Who knows. Who cares? It’s time to sit on the sidelines and wait for the idiocy to end.

• 17 Markor // Dec 19, 2007 at 11:42 pm

  I would probably make a deal for 40% off of a house in North Seattle. … Things will definitely be better next December.

  You’ll lose your shirt at 40% off. Prices will definitely hit 80% off.

• 18 what goes up comes down // Dec 20, 2007 at 2:33 am

  Markor, I guess you are being sarcastic — sense your last post seems to go against everything else you have been saying.

  Just think a few mere months ago Nostradumb*ss, Angie, and others said that foreclosures were a near impossibility in fine old Seattle — hmmm, how things change.

  Spring time will be more and more interesting.

• 19 bitterowner // Dec 20, 2007 at 3:28 am

  Re Losh: “This is what you guys wanted.”

  As has been stated repeatedly, there is a huge difference between what one “wants” and what one “expects” to happen. I expect that this is only the beginning.

• 20 notabull // Dec 20, 2007 at 6:40 am

  “Therefore, I’ll save money and wait a year. Things will definitely be better next December. How much better? Who knows. Who cares? It’s time to sit on the sidelines and wait for the idiocy to end.”

  Exactly. If prices are *another* 10% down next December, then great. If they’re down 2%, that’s awesome too. More houses on the market? More choice!

• 21 david losh // Dec 20, 2007 at 7:26 am

  Real Estate is a business. It’s a lot of money. What I object to is internet speculation about the Real Estate business. I object to internet based business models that have people buying Real Estate like a stock on E-Trader or Amazon.com.
  You can’t regulate Loan Originators without taking away E-Loan.com. How many web pages do you look at with an ad offering to refi your home?
  The gentleman in foreclosure I’m seeing tomorrow bought a house by shopping on the Zip Realty web site, buying from a Real Estate agent more than happy to write it up and financing the mess through an on line mortgage. Slick, he saved a bunch of money. It gets worse, but hey, let’s do some more education.
  Real Estate is a complicated business. As much as transparency is a word the word does not relate to Real Estate. I can start writing or talking now and continue through the rest of my life and still not be able to impart what I know about the Real Estate community.
  I object to the cheer leaders of Real Estate. You may not know it but that has always been a term in the Real Estate business. Those are the people you avoid like the plague. It seems to me, today, the internet is full of cheer leaders.
  As far as waiting it will get better, you’re right, it just won’t get better than panic selling and craigslist? Is craiglist a buyers guide? Why not make an offer?

• 22 David McManus // Dec 20, 2007 at 8:35 am

  If it’s so complicated, then how did everybody and their mother go out and get a real estate license the past few years? I could get it online, in my spare time, or over a couple of weekends. That doesn’t spell complexity to me. I can’t go out and get my M.D. online and I can’t become an attorney for a few hundred dollars and a bogus online course.

• 23 softwarengineer // Dec 20, 2007 at 8:49 am

  THERE’S GONNA BE A LOT MORE LEGAL CITIZEN SEATTLE HOMELESSNESS I’M AFRAID AND THE GOVERNOR “UNDOCUMENTED IMMIGRANT” PLAN WON’T HELP AT ALL

  Imagine if we had all the social support money (its many billions in this state per year we’ve spent to support/supply cheap/illegal labor to housing contractors, farmers, landscapers, etc) we’ve spent in schooling, medical, etc….to help slave master illegal companies and corporations in Washington State?

  It makes that $1.2B Tim brought up a complete joke.

  Yes , homelessness is on the rise and its getting far worse. Every time a low income development disappears, there’s more tents at in the Kirkland/Issaquah tent cities. Most of the homeless are mentally ill, but some aren’t. A lot of them have missing teeth. 13% of them are American veterans, with missing limbs.

  The King County Housing Authority has plenty of “dirty little stories” about legal Americans getting evicted and homeless because they are mentally ill, but the MSM is in denial too. We’d rather spend social support money on illegal Seattle companies/corporations hiring slave labor rates. After all, this is the right thing to do.

  P.S., I know of a legal citizen homeless lady in Issaquah who was evicted because she was mentally ill. They put her in jail too, then released her and dismissed the charges, after they threw her and her kids on the street. I used to bring the family bags of food by the way. The low income units to prevent homelessness are drying up fast and we’re all in self-centered denial!

• 24 Dan C. // Dec 20, 2007 at 9:02 am

  Real estate is one of the most UN-complicated businesses. All you need is a competant attorney, some spare time to look at houses, money for closing costs and you are done. NO REAL ESTATE AGENT NEEDED! The woman who cut my hair quit last year, got her real estate license and tried to flip houses. (She now cuts my hair again)

  RE is a racket and I root for companies like Redfin who throw a wrench in the system.

• 25 Dan C. // Dec 20, 2007 at 9:03 am

  BTW, I have my Real estate license, I got it when I was working in commercial real estate leasing. Easiest thing I have ever done. Driver’s ed was harder…

• 26 johnnybigspenda // Dec 20, 2007 at 9:05 am

  Ever consider that Morgan Stanley and alike are writing off all the bad investments NOW because it is what the market expects? Maybe they are just doing some house cleaning while the market still tolerates it (to some extent).

  If they are able to clean up their balance sheet in one or two ‘bad quarters’ it sure makes the next few quarters look a lot better after the deadweight has been dropped.

  Who knows? Maybe it even gets them some cheaper money from the Fed so they can make even bigger margins on loans to regular joes like you and I?

  I’d say half of what you see in ‘losses’ at the banks right now is house cleaning and grand standing.

• 27 on topic // Dec 20, 2007 at 9:07 am

  the psychology cycle of real estate isn’t any where near where it has to be before i decide to buy.

  once my coworkers and parents start talking about how they wish they weren’t trapped in a home loan and how houses are really risky investments that should only be considered if you really like the place and plan to live there for 10 years and just can’t stand to rent anymore, then it will be time to buy.

  that could take 10 years.

  the prototypical $10/hr machine operator in SoCal who is $200k underwater on a $600k loan is still doing everything possible to keep his loan because he knows that real estate always goes up and doesn’t want to lose his investment.

  this despite 2 years of declines. psychology about houses will be slow to change.

  psychology about condos will change much faster since they aren’t really part of the American dream. but i don’t really want to live in a condo

• 28 Marc // Dec 20, 2007 at 9:28 am

  johnnybigspenda,

  I’ve wondered about that myself. The problem with the SIVs and CDOs is that there’s no market for them because everybody’s afraid the underlying mortgages will default en masse. If that fear turns out to be unfounded or overblown (granted, that’s a big “if”), I’m sure we’ll see all of these big investment banks discreetly restate the value of these investments and claim they’ve had another banner quarter/year/etc. with record profits.

• 29 Markor // Dec 20, 2007 at 9:29 am

  Markor, I guess you are being sarcastic — sense your last post seems to go against everything else you have been saying.

  My point is that trying to predict how far the market will fall, esp. by when, is just wishful thinking. It might be easier to predict that the market will fall, but look at how many people, even economists, were off by 2+ years on that (during which prices rose).

• 30 notabull // Dec 20, 2007 at 9:34 am

  “but look at how many people, even economists, were off by 2+ years on that (during which prices rose).”

  You’re mostly confusing the national picture with the local picture. Nationally, some “bear” economists started to make much more noise around the summer of 2005. Due to YOY pricing measures, we didn’t really see until 2006 that this was indeed around the peak if not a little early.

  WA is late to the party, of course…

• 31 Chris // Dec 20, 2007 at 10:31 am

  Its not that hard to forecast the price points at which we’ll hit bottom. Take the historical price-rent spread. Forecast rents and presto, we have a good sense for where prices should be. Getting the timing right is the hard part. so, a prudent move might be to set the price target and wait.

• 32 MacAttack // Dec 20, 2007 at 10:35 am

  Hmmm… Just like Portland… six months behind the rest of the country. Good thing we’re not already in a recession to boot. I don’t see many REO houses in Oregon, yet.

• 33 johnnybigspenda // Dec 20, 2007 at 10:38 am

  Feeling the Crunch
  by Ben Stein

  If I were to choose a cartoon to represent the financial events of 2007, it would be the familiar one of Lucy promising Charlie Brown that this time, definitely this time, despite all the lies in the past, she would hold the football firmly in place while he practiced placekicking. Then, of course, she snatches it away and he goes flying onto his backside.

  In the case of 2007 and investors, Lucy is, as always, Wall Street. The football is collateralized mortgage obligations, and the placekicking dupe is you and me. But the smart observer is the guy or gal or who knows this crisis won’t go on forever, and the time to buy stocks, mutual funds, and ETFs is when everyone is worried — not when they’re chirrupy and happy.

  What Went Wrong

  Let’s start at the beginning.

  It’s not even six years after the catastrophe of the high-tech fraud and stock collapse, and, after endless professions that Wall Street would stick to the highest levels of probity and honesty, it’s back to the same old tricks. The trick is — as always — to sell “securities” that are not at all secure and are worth far less than the con men on Wall Street say they are.

  This time around, the “securities” were immense pools of mortgages issued often with minimal or no credit checks on the borrowers, often on the collateral of homes that were worth less than the loans. Very often, the borrowers had little or no equity in the house, so that as soon as the real estate market went into a cyclical correction of extra-large size (to correspond with the real estate boom that was also of uniquely large size), the borrowers simply left the keys in the mailbox and went back to renting.

  In many cases, the borrowers were themselves deceived about the terms of the loans and the likelihood that they could refinance their way out of any problems that occurred.

  Crunching the Numbers

  No one, and I mean no one, knows how large the losses have been as the buyers of the mortgage pools have seen their investment dry up and blow away. By my rough calculation, with help from the president’s Council of Economic Advisers, about 6 trillion dollars of new mortgages were issued between 2005 and mid-2007. Of this, about 20 percent might have been subprime. That makes $1.2 trillion.

  Of that, about a third might default (many more from the last period of the lending binge, when standards simply vanished), which would indicate losses of about $380 billion. Of that, about 60 percent will be recovered when the houses are seized in foreclosure and, after the legal fees are paid, sold to shrewd buyers. That leads to a net loss to pension funds, municipalities, labor unions, hedge funds, and wealthy foreigners of about $150 billion, as a very rough number.

  That number may be even greater when upwards of $40 billion in losses on mortgages call Alt-A’s — where the borrowers didn’t have poor credit, but the interest rates reset too high for them to afford — are added. If we also assume that defaults might be even greater on mortgage pools sold since the middle of 2007, the total unrecoverable losses will be about $200 billion to $250 billion. Ouch!

  On top of that, there are losses on structured investment vehicles, in which speculators basically borrowed short-term money to buy long-term debt — always risky — and possibly some losses on car loans as well, but that’s not yet clear. There are also losses to hedge funds, which are loosely regulated pools of investments, but their accounting is generally murky.

  Still with me? Because there’s light at the end of the tunnel.

  The Usual Suspects

  But first, here are some amazing facts about this debacle: As far as I know, not one person on Wall Street has been even indicted for, let alone convicted of, fraud. Not one. In fact, the leaders of the major investment banks, banks, and brokerages that sold this worthless stuff — and kept some of it in-house, leading to immense losses for their firms — have been retired with immense severance bonuses.

  The former head of Merrill Lynch — who led his firm to near ruin by selling this garbage, and led his clients (whom he had a fiduciary duty to always put first) to disastrous losses — was given a retirement package of about $160 million. The people at the banks who supervised this meltdown were routinely paid multimillion dollar wages per year.

  A Peek Ahead

  Here are two even more amazing facts: Despite this massacre — which went far beyond where I originally thought it would go — the stock market is still up for the year by a few percentage points, even though financial stocks are by far the largest sector of the S&P. Even more amazing, the economy is so large and so resilient that the losses will not be enough to cause lasting damage to the nation as a whole. (Some individuals, however, will be ruined.)

  The losses of $200 billion or so amount to only about 2 percent of bank credit, and far less than the percentage of total credit available domestically and from foreign investors. The Federal Reserve is available at the flip of a switch to replenish the lost liquidity of banks, and new, wealthy foreigners are still lining up to invest in our financial entities.

  There will obviously be an economic slowdown, and possibly even a shallow recession. But we’re extremely blessed to have good fiscal stewardship from our government and top-flight guidance at the monetary-policy pentagon (the Fed). Unless they make major mistakes, we’ll get through this in halfway decent shape.

  Get Over It

  Still, the lessons for us are keen and cut like a knife. But be brave — these periods of crisis are inevitably the time to buy, even if you have to wait years for the crisis to sort itself out. It takes guts and counterintuitive thinking, and if you don’t have the stomach to do it, no one will blame you.

  If you do jump into the pool, be sure to diversify, give yourself guaranteed income from variable annuities and annuities, and stick with proven entities like very largely varied index funds at home and abroad. As you all know, I particularly love the emerging market funds and ETFs for the long haul.

  Oh, and the next time Lucy offers to hold that football, kick her instead.

• 34 johnnybigspenda // Dec 20, 2007 at 10:40 am

  This is my take away “The losses of $200 billion or so amount to only about 2 percent of bank credit, and far less than the percentage of total credit available domestically and from foreign investors.”

  and for some balance:
  “the economy is so large and so resilient that the losses will not be enough to cause lasting damage to the nation as a whole. (Some individuals, however, will be ruined.)”

• 35 biliruben // Dec 20, 2007 at 10:55 am

  Ben Stein thinks analogies run the world.

  I only started reading him the last few months, and I can’t believe he is given the stage he is. He’s not a moron, but he thinks a bit too much of his folksy sensibilities. If a world view that makes sense to him in his brain has a nice simplicity and charm, he publishes it. Most of it is malarkey, imho. Rules and thumb and generalities work great until they don’t.

• 36 johnnybigspenda // Dec 20, 2007 at 11:01 am

  i agree with your comment bill, but thats just the part that gets him a front page on yahoo… i like his contrarian / sensible view points (I’m a value investor) and some his logic struck a chord with me… ie. that this credit mess will work it self out (with some heartburn in the process) and that we are not likely headed for the Great Depression II as many here would like to believe.

• 37 Markor // Dec 20, 2007 at 11:02 am

  Its not that hard to forecast the price points at which we’ll hit bottom. Take the historical price-rent spread. Forecast rents and presto, we have a good sense for where prices should be.

  Prices can fall far below where they should be, just like they can rise far above where they should be. The price-rent ratio is dependent on prices, so fluctuating prices affect it. Even prices that fluctuate randomly hover around their historical average over a given time period; it takes no skill at all to predict that randomly fluctuating prices that are above their historical average will eventually fall below their historical average.

• 38 Pegasus // Dec 20, 2007 at 11:16 am

  Glad to see the Gov’nor hard at work spending the peoples money without one prosecution of the crooks that perpetrated these fraudulent mortgages. Where are the cops????

  Gov’nor Gregoire did the same thing with Household Finance a few years ago with their predatory loans. A settlement brokered by other more industrious Attorney Generals of other states allowed Gregoire to jump on the money bandwagon without lifting a finger to prosecute the crooks. People were paid pennies on the dollar for their miseries and the crooks got to walk away free.

  Now as Gov’nor she has allowed the same and greater frauds to exist and what is her excuse? She can’t say she did not know. In the past she worked for the man who lobbied for Household; Booth Gardner. Remember him? Something stinks….again.

  I expect our two worthless US Senators to weigh in soon with their own taxpayer bailout while they sat idly by refusing to deal with this and other frauds for years.

• 39 [troll] // Dec 20, 2007 at 11:22 am

  Th sky s fllng - 90% rdctns n R cmng sn! Sty tnd!

• 40 biliruben // Dec 20, 2007 at 11:31 am

  110%! Central planning will PAY YOU to live in and maintain that albatross of stick and brick around your neck.

• 41 NotaBull // Dec 20, 2007 at 11:37 am

  Houses will soon be free.

  The next bubble is in ammo. I’m off to buy as much as I can, then I’m going to go and find a cave that’s within a two hour drive of Seattle. Even during a period of anarchy, the commute time to prime looting grounds will be important and closer-in caves will hold their value better.

• 42 squidier // Dec 20, 2007 at 11:46 am

  Captain Caaaaaaaaaveman!

• 43 Jonny // Dec 20, 2007 at 11:47 am

  “I would probably make a deal for 40% off of a house in North Seattle. … Things will definitely be better next December.

  You’ll lose your shirt at 40% off. Prices will definitely hit 80% off.”

  I don’t ever intend to sell. I could only lose my shirt if I sold.

• 44 afferent input // Dec 20, 2007 at 12:12 pm

  Ben Stein is an idiot. Behold his moronic glory!

  http://www.expelledthemovie.com/

  Nuff said.

• 45 deejayoh // Dec 20, 2007 at 12:50 pm

  Ben Stein is an idiot. Behold his moronic glory!

  The highlight of his career was 30 seconds in Ferris Bueller’s Day Off .

  His father was at least an actual practicing economist - notable being the formulator of “Herbert Stein’s Law,” which he expressed as “If something cannot go on forever, it will stop.”

  Yup.

• 46 David McManus // Dec 20, 2007 at 12:51 pm

  This was in my in-box from Sen. Cantwell today.

  Thank you for contacting me regarding the impending foreclosure crisis. I appreciate hearing from you on this important issue.

  The Mortgage Bankers Association has reported that the percentage of mortgages entering foreclosure from July through September of 2007 is more than double the rate seen in those months in 2006. While subprime loans only make up an estimated quarter of loans taken out today, almost two-thirds of foreclosures are made on homes purchased with subprime loans. Each foreclosure can impose damages up to $80,000 to the surrounding community, including the loss of property taxes, the damage done to the prices of neighboring properties, and the cost of foreclosure related services performed by the government.

  Without action, over three million homes are likely to be foreclosed upon in the coming years, and approximately two million families affected. With such grave financial consequences, the coming foreclosure emergency must be closely examined, and appropriate action taken.

  One factor that must be considered in deciding what action to take is the prevalence of predatory lending practices, which have contributed greatly to the popularity of subprime loans. Almost 90 percent of subprime loans were taken out by those refinancing their homes-not by first-time homebuyers. Furthermore, 61 percent of those who received subprime loans were eligible for more secure prime loans. In most cases, those who were eligible for prime loans were led to believe that the riskier subprime option was the only choice for which they were eligible. This deception must be considered as we try to strike an appropriate balance between helping people who are at risk due to events beyond their reasonable control, and allowing others to assume responsibility for the consequences of their financial decisions.

  After much deliberation, I joined my colleagues in the Senate to vote 93 to 1 in favor of the FHA Modernization Act (S.2338) on December 14, 2007. This legislation allows at-risk subprime mortgage borrowers to refinance into federally insured loans, thereby avoiding foreclosure. The Senate passed this legislation after a lengthy process designed to determine a suitable course of action, including multiple hearings by several Senate committees.

  Another recently passed measure was an amendment I cosponsored that alters the Mortgage Forgiveness Debt Relief Act of 2007 (H.R. 3648). This amendment will prevent homeowners from having to pay taxes on any debt forgiveness that has been granted. For families that cannot meet their mortgage payments, this helps them to avoid incurring large tax bills. The bill itself extends a provision that permits homeowners to exclude mortgage insurance payments from the income on which they are taxed. These tax relief measures are designed in particular to hasten financial recovery for those who have been harmed by predatory lending. I was pleased to see President Bush sign this measure into law on December 20, 2007.

  It may interest you to know that Washington state has some of the strongest regulations in the nation related to mortgage lending. Six percent of Washington state mortgages were subprime loans, compared to 6.6 percent nationally, but of those loans, only 8.75 percent of Washington loans were delinquent in the first quarter of 2007, compared to 13.87 percent nationwide. The foreclosure rate in Washington state as of June 2007 was .49 percent, compared to a national figure of 1.4 percent.

  Please be assured that I will continue to monitor the situation, and will follow any developments made on subprime foreclosures. Similarly, I will keep your views in mind if any further legislation regarding the issue should come before the Senate. This is an issue that we must take very seriously, and you should know that I am weighing every option very carefully.

  Thank you again for contacting me to share your thoughts on this matter. Finally, you may be interested in signing up for my weekly update for Washington state residents. Every Monday, I provide a brief outline about my work in the Senate and issues of importance to Washington State . If you are interested in subscribing to this update, please visit my website at http://cantwell.senate.gov . Please do not hesitate to contact me in the future if I can be of further assistance.

  Sincerely,
  Maria Cantwell
  United States Senator

• 47 Buceri // Dec 20, 2007 at 12:57 pm

  I liked Ben Stein as the teacher in “the Wonder Years”. Ben the economist…..not too much.

• 48 Dan C. // Dec 20, 2007 at 2:41 pm

  McManus,

  I got that same response to my angry rant about the housing bailout. Here was my response to her:

  Senator Cantwell, (Or the aide who will be reading this response)

  Thank you for the form letter that you returned. Although you did not address ANY of the issues that I outlined in my original letter I appreciate receiving a response.

  Contrary to the ideas presented in the letter shown below, I am OPPOSED to any sort of bailout, tax relief, refinance, hug, pat on the back etc. provided to a subprime borrower. This is not a case of a family losing their home or their livelihood, this is a case of reckless lending to ignorant consumers who are now taking no responsibility for their actions. Since you have now told me that you directly sponsored bills relating to this issue, thereby directly supporting giving handouts to these borrowers I would like my own share of the pie. Since these bills will be directly supported by MY TAX DOLLARS, I would like all of the payroll taxes remitted from my monthly paychecks returned in full, by April 1st, 2007. With this tax reimbursement, I may be able to afford an extremely high downpayment on an overpriced house, foreclose on my loan, walk away from a LEGALLY BINDING CONTRACT and not have to worry about any consequences. Thereby starting this whole mess anew…

  How about you sponsor a bill supporting any of the following? If these issues had been supported by your office, we would not be in this mess in the first place.

  -AFFORDABLE HOUSING

  -Higher taxation on multi-family developers

  -Mortgage reform (BEFORE the fact, not as a response to a problem. Too little to late…)

  -Transportation reform and construction

  -Environmental legislation

  As with most Senators and State Representatives, I realize that you have to pander to your financial backers, rather than represent the interests of your constituents who originally voted you into office. You have again reminded me of the ineffectiveness of the national legislature, and further undermined my faith in the representatives of the state of Washington. You have lost yourself another voter…

• 49 Pegasus // Dec 20, 2007 at 6:30 pm

  Maria Cantwell…..HAHAHA. Please rest assured that she and Patty Murray will do NOTHING until the Barbarians are at the gate and have looted the entire country. Then they will propose that the taxpayers bail out the crooks, the crooks get to keep the stolen money and the damaged get a shiny new penny for their losses. If think this is a joke write these two worthless Senators about any massive fraud scam. Maria will sent you a nice canned response and do nothing and Patty won’t even respond unless you donate(d) to her campaign. Welcome to Washington State politics.

• 50 david losh // Dec 20, 2007 at 7:11 pm

  Education in Real Estate is the first thing you’re told to forget. You have to be involved in the business of Real Estate to understand it. I bought a restuarant one time. I’m bright, I can do things, but it was like the time I bought into a hotel; school just doesn’t mean much to the bottom line.

• 51 WestSideBilly // Dec 21, 2007 at 1:21 pm

  Dan C - that is excellent. I wonder if that one will make it to her must-read list. :-D

• 52 Alex // Jan 4, 2008 at 4:02 pm

  Is anyone aware of any big incentives from new builders in the Seattle Area? I moved her about 4 months ago and decided to rent instead of buy. I told my wife I didn’t want to be upside down in our mortgage for years to come.

  http://online.wsj.com/article/SB119803038237438417.html

  Since the Housing market peaked in August 2005, we have argued that reported home sale prices dramatically understate the actual price drop of sales. This has been especially true of New Home Sales, thanks to the many builder incentives we have seen.

  Today’s WSJ has an article detailing just how pervasive the practice has been nationwide — and how much of these incentives are not disclosed to the various county agencies that track home prices — despite the legal requirements they do so. From Department of Duh: How Hidden Incentives Distort Home Prices.

  Ubiq-cerpt:™

  “As the housing market slump deepens, disguised discounts are making it harder to tell exactly how much people are paying for homes.

  Buyers, sellers and other market participants typically monitor fluctuating home values through sale records that legally have to be listed with county clerks. But incentives offered to buyers — ranging from free cars or furniture to cash rebates — are making those prices less reliable as a sign of what buyers actually paid, netting out the giveaways. And that may be misleading lenders and people shopping for homes, some real-estate lawyers and appraisers warn.”

  Some examples where the incentive is not public:

  • KB Home, Colorado: $196,000, according to deed.
  Actual price = $168,400

  Buyer disclosure form: KB paid $27,600 to 3rd firm, which made a cash payment to the buyer.

  • Lennar, Florida: $479,000
  Actual price = $450,000-459,000

  Home buyers received Vouchers to purchase Mustangs, or a $20,000 Harley-Davidson.

  • Bennett Homes, Maryland: $600,000
  Actual price = $469,000

  Originally listed in February 2005 for $635,000; Wells Fargo held two mortgages: first for $479,800, second for up to $120,000. Buyer’s agent said the transaction included a $120,000 “payment by the builder to an organization that collected fees for finding buyers.”

  (I always thought those folks were called Real Estate Agents).

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